Currently there is no supported or documented way to prune the list of servers in SSMS' "Connect to Server" dialog. If you connect to a lot of different servers, this list essentially manages itself; if you don't, stale entries for servers that have been retired or renamed will be there forever.
In SQL Server 2005, the undocumented method was to close SSMS, delete the file mru.dat, and restart SSMS.
In SQL Server 2008, you can do something similar with the file SqlStudio.bin.
However, it is unclear what other effects this might have (now, but more importantly in future versions), or what your options are if this approach makes SSMS unusable (uninstall/reinstall client tools I presume).